Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg
Speaker 1: Radio this week. I have a friend of mine, Jonathan
Speaker 1: Miller of Miller Matrix is his blog and Miller Samuel
Speaker 1: is his shop. Jonathan has been an observer of the
Speaker 1: real estate market and industry for for decades, literally decades.
Speaker 1: We met some years ago. I'm trying to remember if
Speaker 1: the first thing we did was a conference. We were
Speaker 1: on a panel with the old people, Bob Schiller and
Speaker 1: Dottie Herman, who I believe was the head of Prudential
Speaker 1: real Estate at the time, and it was oh seven
Speaker 1: or oh eight, and you know, she was the only
Speaker 1: one who was remotely bullish on the panel. It was Miller,
Speaker 1: Schiller and me, and it was like bear bearer and barrassed.
Speaker 1: It was was pretty amusing. We've been friendly for for
Speaker 1: quite a while. UM. I find him to be really
Speaker 1: a unique set of insights into what's going on in
Speaker 1: the real estate market. What his firm does is gathered
Speaker 1: data from around the country, very often in areas where
Speaker 1: there are no other form of data collection going on.
Speaker 1: Specific data far beyond what we see from the National
Speaker 1: Association of Realtors or what what the commerce department puts
Speaker 1: out about new houses, and he crunches the numbers and
Speaker 1: comes up with some really really interesting perspectives. If you
Speaker 1: go to a real estate agency somewhere and they give
Speaker 1: you a tear sheet that shows you lots and lots
Speaker 1: of information about recent sales and length of time on
Speaker 1: the market and all that sort of stuff. His firm
Speaker 1: is the firm that actually collects that data, analyzes it,
Speaker 1: interprets it, and puts it out. He's got deals with
Speaker 1: a number of different companies. Really a fascinating approach to UH,
Speaker 1: taking data and repurposing it in a way that's useful
Speaker 1: for consumers. I find him to be very, very insightful
Speaker 1: about all things real estate. He also has a column
Speaker 1: now he puts something out once or twice a week
Speaker 1: on Bloomberg View in addition to what he does for
Speaker 1: his UH daily blog at Miller Matrix. Just all around
Speaker 1: nice guy and tremendously knowledgeable and insightful. The most fascinating
Speaker 1: thing UH, and I hope this came across in the interview,
Speaker 1: is he often gets tagged as an expert in divorce
Speaker 1: settlements and litigation and all sorts of crazy stuff, and
Speaker 1: he's I am not exaggerating when I say he's pretty
Speaker 1: much been in every single penthouse in New York City.
Speaker 1: But he's the go to guy to a praise these
Speaker 1: fifty and a hundred million dollar properties. Not a lot
Speaker 1: of people with a deep expert teasing that. And he
Speaker 1: could tell stories and actually has, and we touch upon
Speaker 1: it about some of these apartments that are just un believable,
Speaker 1: just unbleeping believable. It's it's fascinating. And he tells um
Speaker 1: all sorts of fascinating tales about where he's been, what
Speaker 1: he's seen, how stuff gets priced. Is there really a
Speaker 1: difference between forty five and forty eight million dollars? Turns
Speaker 1: out an extra bathroom here and a little bigger window
Speaker 1: there worth three million dollars. It's really quite interesting. If
Speaker 1: you are all interested in real estate, and I am,
Speaker 1: and I assume many of you are, I suspect you'll
Speaker 1: find this conversation to be engrossing. Without any further ado,
Speaker 1: my conversation with Jonathan Miller. This is Masters in Business
Speaker 1: with Barry Ridholts on Bloomberg Radio Today. I'm actually thrilled
Speaker 1: to have an old friend in the studio. You may
Speaker 1: not have heard him directly, but you've probably read a
Speaker 1: quote of his in the New York Times or anywhere
Speaker 1: else somebody is talking about real estate. Today, I have
Speaker 1: Jonathan Miller, founder and CEO of Miller Samuel Welcome to
Speaker 1: the show. Great to be here. And I have to say, Barry,
Speaker 1: you have a great voice for radio. I have a
Speaker 1: face for radio, is what you're trying to say. So
Speaker 1: for those of you who really don't know who Jonathan is,
Speaker 1: he's fairly legendary in the world of real estate. I
Speaker 1: think that's a fair statement. Right, well, at least in
Speaker 1: my own mind. You're on legend in his own mind
Speaker 1: if you're in New York real estate or a few
Speaker 1: So let me back up and give your CV a
Speaker 1: little bit. You're so you started out in this industry
Speaker 1: as a agent and then an appraiser the mid eighties,
Speaker 1: all right, and and what kind of set you apart?
Speaker 1: I want to talk about three things so people know
Speaker 1: who you are. First, you were one of the first
Speaker 1: guys in the real estate world. And this sounds insane
Speaker 1: because you would thought this was going on for decades.
Speaker 1: Who said, Hey, all these transactions are generating a lot
Speaker 1: of data. Why don't we take this data and take
Speaker 1: a closer look at it and see if we can
Speaker 1: discern any sort of meaning from how long a home
Speaker 1: is on the market, for what it sells relative to
Speaker 1: its asking price, etcetera, etcetera, etcetera. No one was really
Speaker 1: doing this before you came along, not really. Most of
Speaker 1: what was being done was marketing brochure not or very
Speaker 1: complicated in the sense that it was sort of academia
Speaker 1: and it was hard for the consumer to digest. Uh.
Speaker 1: As journalists say the trend. Three data points make a trend,
Speaker 1: and then I like to say, the trend is your
Speaker 1: friend until it ends right depend at the end. I
Speaker 1: like that that's even better. So that that's my contribution
Speaker 1: to Uh. You know, it's true if it rhymes right right,
Speaker 1: absolutely so the second so, so, assembling the data was
Speaker 1: the first thing you did, and then miraculously you were
Speaker 1: an objective commentator observer. You know, I used to mock
Speaker 1: relentlessly the National Association of David Lay, the Chief Economists, right,
Speaker 1: is painful, just just everything out of their mouths were
Speaker 1: just horrific marketing spin. Well, you have this dilemma. So
Speaker 1: in real estate transaction, to have this, you have this
Speaker 1: if you look at the broad view, you've got it.
Speaker 1: One end of the spectrum. You've got the real estate community.
Speaker 1: It's always a good time to buy was literally it
Speaker 1: was literally an ad they put out in the midst
Speaker 1: of the housing collapse. It's always a great time to
Speaker 1: buy or sell a house. What that really means is
Speaker 1: it's always a great time to generate a commission based transaction.
Speaker 1: And ps, my mother was a real estate agent. This
Speaker 1: was dinner conversation. So I'm not bashing real estate agent
Speaker 1: as an outsider. This was literally what I grew up with.
Speaker 1: So when I mock these people, it's from the inside,
Speaker 1: not the outside, right absolutely. And and then the other
Speaker 1: end of the spectrum is the academics. You know, the
Speaker 1: case Shiller index and and and all the problems of
Speaker 1: that and what the purpose of it is and uh
Speaker 1: and we've really position yourself somewhere in the middle, which
Speaker 1: is essentially in the trenches, providing uh, sort of on
Speaker 1: the ground observations about the market. And one of the
Speaker 1: things that I found really fascinating being an appraiser was
Speaker 1: during the whole big sort of housing boom, run up,
Speaker 1: credit bubble back, uh starting circus, I started seeing it
Speaker 1: in oh three oh four. Uh, no one else was
Speaker 1: talking about it, and I thought it was really bizarre.
Speaker 1: It was you were out in left field, and in fact,
Speaker 1: to emphasize your data slicing skills. So first, the data
Speaker 1: runs that you put together, Actually it's a feed into Bloomberg.
Speaker 1: So if you're on a terminal, I don't know what
Speaker 1: it's called. The Yeah, we have a Manhattan Luxury price index.
Speaker 1: There's three different meat metrics that are used. We also
Speaker 1: have a luxury rental price index. And uh, and I've
Speaker 1: also seen your specific regional housing data. Yeah, here's NASA County,
Speaker 1: here's parts of Flower right. We cover eighteen different markets,
Speaker 1: so we cover we cover a whole bunch of markets
Speaker 1: in New York City, Metro for markets in South Florida,
Speaker 1: and then I'm now starting to develop research in Los Angeles.
Speaker 1: So it's amazing because I'd love to see the San
Speaker 1: Francisco think that would be Uh. I was approached about that,
Speaker 1: but but nothing has come to it yet. But what's
Speaker 1: amazing about it is the concepts of supply and demand
Speaker 1: they don't change all that much. I mean the numbers change,
Speaker 1: how many zeros are After it, I'm amazed what you
Speaker 1: get in l A for a couple of million dollars
Speaker 1: versus what you get in New Ye. Right, Well, you
Speaker 1: always see you always see the celebrity, you know, a
Speaker 1: Johnny Depp or whoever. It's like, Oh, they sold their
Speaker 1: palatial state for three and a half million dollars and
Speaker 1: I'm thinking, well, that's a large two bedroom in Manhattan.
Speaker 1: That is not a prestige play. Speaking of which I said,
Speaker 1: there are three things. The third thing, which is we'll
Speaker 1: get to You've been in pretty much every penthouse in Manhattan.
Speaker 1: Is that much of an overstatement? I have one of
Speaker 1: the most of the greatest experiences seeing these insane penthouses
Speaker 1: the design. However, what I don't usually get to see
Speaker 1: is them in the evening at night. It's always during
Speaker 1: the day, so I don't get to see them all
Speaker 1: lights on the city, which is you know, half of
Speaker 1: the spectacular aspect of review. But we see and you
Speaker 1: know that in itself is a whole different submarket of
Speaker 1: the housing market, uh, which is held up really well,
Speaker 1: which has held up really well because the money is
Speaker 1: almost an afterthought. It's irrelevant. I'm gonna buy this because
Speaker 1: I can, and I don't know. Well, the whole uh,
Speaker 1: just a digress to the whole phenomenon of this high
Speaker 1: end aspect is it's a global phenomenon. It's just unique.
Speaker 1: It's London, it's Hong Kong, it's Shanghai, it's it's to
Speaker 1: any major city. It's it's booming because there's a boatload
Speaker 1: of money. We're talking real estate with Jonathan Miller, CEO
Speaker 1: and founder of Miller Samuel. Let's hold off on discussing
Speaker 1: the penthouses just for a few seconds. I want to
Speaker 1: talk for a moment. I want to pick your brains
Speaker 1: for a moment about what it is that drives most
Speaker 1: of real estate. We put together we were talking about this,
Speaker 1: We're putting together a list, and it was everything from
Speaker 1: demographics and household formation to interest rate wages. But really
Speaker 1: all this comes back down to credit, doesn't it. It
Speaker 1: really doesn't. And that's actually one of the key components.
Speaker 1: If you look at the bulk of the housing market
Speaker 1: right now, it's really defined by access to credit. If
Speaker 1: you look at you know, I always like to say
Speaker 1: housing is local and credit is national, and and so
Speaker 1: literally you know, post Lehman, uh credit crunch. Uh. Every
Speaker 1: market started behaving the same way. We had things like
Speaker 1: rents rising because people were tipped back into the rental
Speaker 1: market because they couldn't qualify. We also had inventory begin
Speaker 1: to fall to record lows nearly universally across all housing
Speaker 1: markets because a homeowner with lower negative equity, which is
Speaker 1: roughly about all homeowners with a mortgage UH, don't qualify
Speaker 1: for that next purchase, either a trade up, a ladder, mover,
Speaker 1: or downsize. So what do they do. They sit and
Speaker 1: they don't. They don't ender the market organically the way
Speaker 1: that normally would bring their house to the market. And
Speaker 1: then people that don't have a credit condition are saying, well,
Speaker 1: I'm not I can't find the house I want, so
Speaker 1: I'm not gonna list my house, and you sort of
Speaker 1: double down on the problem. And only the only way
Speaker 1: out of that are is twofold one is housing prices rise,
Speaker 1: which naturally occurs because not necessarily own demand correct and
Speaker 1: and and or if strong fundamentals either. It literally is,
Speaker 1: if you can strain the supply, prices rise. And that's
Speaker 1: been my biggest criticism of the pronouncement of the US
Speaker 1: housing recovery as early as you know two years ago,
Speaker 1: because the fundamentals in terms, you know, incomes generally stagnant
Speaker 1: in the US, unemployment even though the numbers on the
Speaker 1: top level look good, it's still not good. And credit
Speaker 1: is about is tight, at least for residential mortgage, as
Speaker 1: it was in the days following Lehman. So so, I
Speaker 1: never thought in my career that I would be saying
Speaker 1: that tight lending conditions are making housing prices rise. But
Speaker 1: they are, but they really it's it's a combination of
Speaker 1: tight lending conditions following a boom and bust in real estate,
Speaker 1: because you end up with a lot of people who
Speaker 1: don't have any look, under normal circumstances, you're in the
Speaker 1: house for seven years. Even if you have tight credit conditions,
Speaker 1: you should have some equity in the house. But if
Speaker 1: you bought at the peak before at correction, if you
Speaker 1: put little or no money down, there is no equity there,
Speaker 1: and that locks you into that house unless you're just
Speaker 1: gonna walk away. And if you do that, good luck
Speaker 1: qualifying for right. And I think that you know, the
Speaker 1: narrative about housing right now is this idea that you know,
Speaker 1: is the housing recovery losing steam? You know, are we
Speaker 1: seeing you know, projections for housing price increases are going
Speaker 1: to be less this year than they were last year. Well,
Speaker 1: last year was based on artificial conditions. I must see
Speaker 1: two thousand thirteen from the context of the US housing
Speaker 1: market as as really a an anomaly. In other words,
Speaker 1: in two thousand ten, eleven twelve, we have this pent
Speaker 1: up demand the election cycle to build up to the
Speaker 1: fiscal cliff. The world apparently didn't end after the fiscal
Speaker 1: cliff expired, and there was all of a sudden a
Speaker 1: concern about rising interest rates because the economy was going
Speaker 1: to get better, and you had all the fence sitters
Speaker 1: moving out of them out of their tax change as well.
Speaker 1: And that if the tax change was certainly well on
Speaker 1: the high end of the market, especially and you had
Speaker 1: people rush in, and you still have the low inventory issue,
Speaker 1: prices rise. Now we're you know, we're doing these year
Speaker 1: over year comparisons and activity or prices. If they're not
Speaker 1: above last year, it's somehow a failure or a sign
Speaker 1: of weakness. When I contend it's the wrong comparison to make,
Speaker 1: it absolutely is. We're discussing real estate in America with
Speaker 1: Jonathan Miller. So now let's talk a little bit about
Speaker 1: the high end. We understand what's constraining everybody's houses. The
Speaker 1: normal I don't even know what to call of. The
Speaker 1: median house is about two D seven thousands, right, it's
Speaker 1: right exactly somewhere on that and you know, obviously it's
Speaker 1: really regional. Two seven thousand in the New York metro
Speaker 1: area doesn't get you a lot. One of the people,
Speaker 1: am I get to a closet in a hallway that
Speaker 1: you're going to buy from the co op to combine
Speaker 1: with your apartment. One of the people in my office
Speaker 1: transferred here from Syracuse. They sold a house for a
Speaker 1: hundred and seven thousand NOWS and I'm like, what is
Speaker 1: I don't understand. You look at a picture of it.
Speaker 1: It looks like a regular little you know, a starter house,
Speaker 1: a ranch. But it would go for three in change here.
Speaker 1: So when we talk about normal housing, what, what is
Speaker 1: the story? What should we expect in the near future
Speaker 1: from this housing market? Has the death of housing been exaggerated? Yes? Absolutely.
Speaker 1: I think all it is is a reset from the
Speaker 1: euphoria that we had last year, which was based on nothing.
Speaker 1: I like to say it really was based on this
Speaker 1: horrible skew created by by tight credit that we're already
Speaker 1: seeing a spread or a widening in general between the
Speaker 1: high higher end of the market and the balance of
Speaker 1: the market in the context of the credit conversation we're
Speaker 1: just having because it's so as you move up in price,
Speaker 1: there's a higher probability of either more cash paid or
Speaker 1: just all cash Outright. You also have the the the
Speaker 1: preference by foreign or international buyers towards the high end
Speaker 1: their global investors. Urban markets along the eastern seaboard, on
Speaker 1: the West coast very similar, Phene, San Francisco, Seattle, Vancouver, Canada,
Speaker 1: absolutely very similar. And and that's that's a key driver.
Speaker 1: But other is that we're seeing a disparity between conforming
Speaker 1: mortgages through the former g s c S versus jumbo
Speaker 1: right that that banks like jumbo mortgages. They make money
Speaker 1: on them, they want to so the business decision, well,
Speaker 1: slago is what and they like own the jumbo mortgage
Speaker 1: market right right there, they're they're a huge lion share
Speaker 1: of the market nationally. But but any lender right now
Speaker 1: is looking to do jumbo deals because they make a
Speaker 1: favorable return on it. And then and and the the
Speaker 1: the alternative, the the g SC related transactions, which is
Speaker 1: of the mortgage market is still burdened by in many ways,
Speaker 1: the credit outlook within that realm is very backward looking.
Speaker 1: It's looking at the transgressions. The conservative element is from
Speaker 1: the UH you know, the transgressions that were made several
Speaker 1: years ago, the Department Justice going after banks for bad
Speaker 1: lending practices, all those sorts of things. So it's very
Speaker 1: backward looking, whereas I think the jumbo finance arena is
Speaker 1: very much more current looking. Today, we're discussing real estate
Speaker 1: and housing with Jonathan Miller. Earlier we were talking about
Speaker 1: the difference regionally. How have these recoveries differed. You know,
Speaker 1: I know South Florida is different than Arizona, is different
Speaker 1: than Las Vegas, is different than Southern California, which is
Speaker 1: obviously different than On Valley in Northern California. How do
Speaker 1: these different regions compare and what does that mean for someone,
Speaker 1: let's say living in New York or Washington, d C. Well,
Speaker 1: when you look at you look at a lot of
Speaker 1: the the national housing metrics, and you look at the
Speaker 1: comparison by city, and you'll see generally what you see
Speaker 1: is markets that were hit very hard. Probably the hardest
Speaker 1: were the markets in the what fd i C calls
Speaker 1: the Sand States, the Las Vegas of the world, essentially,
Speaker 1: where there was a tremendous amount of speculation, carpenters and
Speaker 1: nurses quitting their jobs and becoming real estate speculators, and
Speaker 1: and so they fell much harder and farther. And you
Speaker 1: know that what I like, the way I like to
Speaker 1: describe it is when you go from a dollar to
Speaker 1: two dollars, it's a dred percent increase. So the metrics
Speaker 1: in terms of showing their increase made them look like, Wow,
Speaker 1: they're really recovering much more quickly than other other markets
Speaker 1: like New York, for example, that didn't have the speculation
Speaker 1: that you saw in these markets. So it's really almost
Speaker 1: in apples and orange comparison. What you're seeing now is
Speaker 1: the markets that are seeing rapid rapid price growth. Some
Speaker 1: of them, like in Las Vegas, the rates are cooling
Speaker 1: rapidly because they've they've essentially recovered a lot of the
Speaker 1: almost overcorrection that had occurred in those markets is a
Speaker 1: lot of low hanging fruit, a lot of low hanging fruit.
Speaker 1: Whereas markets were the economy is very fundamentally, very strong,
Speaker 1: they didn't have a lot of speculation. Uh, you would
Speaker 1: allude you had talked about it in an earlier segment
Speaker 1: about you know, someone from upstate New York and how
Speaker 1: much you got their market, their markets in the country
Speaker 1: that didn't experience the same boom and bust. So they're
Speaker 1: not going to rise from the the ashes because it
Speaker 1: didn't really fall to the ashes. So so I think
Speaker 1: the rule number one is there is no national housing market, uh,
Speaker 1: in the in the way that it's presented to us
Speaker 1: every month with all the reports. And and and secondly I too,
Speaker 1: by the way, to be fair to case Shiller, they
Speaker 1: do release their twenty and forty metro region housing prices
Speaker 1: and then they jumb them all together. So when you
Speaker 1: look at the individual index, you could still see and
Speaker 1: there are a number of people who then take the
Speaker 1: case Shiller data and slicing dice. In nice Land, you
Speaker 1: could see. A couple of weeks ago, I ran two
Speaker 1: different charts I forgot who I stole them from. One
Speaker 1: showed the percentage recovery off the lows and how far
Speaker 1: they still have to go to get to the highs,
Speaker 1: and they were like Las Vegas was in both they
Speaker 1: were crazy Wow. We're up off our lows, but we're
Speaker 1: still But remember the high point that was reached was
Speaker 1: complete fabrication and consense. It was based on right, it
Speaker 1: was based on They were building these excerbs in Las Vegas,
Speaker 1: these big McMansions. That was a two and a half
Speaker 1: hour drive from any urban center, any job center. So
Speaker 1: how are you going to support these homes if it
Speaker 1: takes you whatever four hours round? Because what was driving
Speaker 1: the demand was lenders were just looking to lend. That
Speaker 1: was how they made money. They package up the mortgages
Speaker 1: and sell them off to the offl of the risk
Speaker 1: of somebody else. We're not in that world anymore, that's right.
Speaker 1: The the shift in credit, and I've written about this
Speaker 1: over the years, went from the borrower's ability to service
Speaker 1: the loan to the lenders ability to sell the loan
Speaker 1: to a securitizer. Once that shifted in the borrower's ability
Speaker 1: to service, it no longer matter to hey, it was
Speaker 1: just a matter of time before it collapsed. So so
Speaker 1: now we talked before briefly about other regions. Texas is
Speaker 1: an unusual region. I don't think a lot of people
Speaker 1: realize why Texas avoided the boom and bust. There was
Speaker 1: a change in their constitution. I think it was like
Speaker 1: a century ago where they are not allowed to do
Speaker 1: cash out. No cash out refinances against their state constitution.
Speaker 1: So everybody maintaining their falling income, replacing it with helocks
Speaker 1: and financing their their day to day. Uh. When you
Speaker 1: run low on money, you just borrow more because how
Speaker 1: prices always go up. The other the other quirk in
Speaker 1: Texas is the idea that the transactions aren't publicly publicly recorded,
Speaker 1: So so any any studies that are done come out
Speaker 1: of the realtors, which is really a subset of the
Speaker 1: public record to begin with, so it's not a full
Speaker 1: data set. So you could almost argue too that ignorance
Speaker 1: is bliss, that that the market wasn't fully informed of.
Speaker 1: So if I use a Zilo app and show me
Speaker 1: what's sold nearby in Texas, I'm not going to see
Speaker 1: the same thing that I see anywhere in ins not
Speaker 1: necessarily because the information isn't it's a nondisclosure state. So
Speaker 1: there many non disclosure I don't know offhand. I want
Speaker 1: to say there's about a dozen. Okay, today I'm speaking
Speaker 1: with my friend Jonathan Miller of Miller Samuel. He is
Speaker 1: an expert on real estate appraisal, transactions, home values, etcetera.
Speaker 1: He has crunches, crunched a lot of data over the
Speaker 1: past few decades about what drives housing. And one of
Speaker 1: the things we really haven't talked about much but I
Speaker 1: want to discuss is the international component about this. The
Speaker 1: international buyers coming here to North America buying up real estate,
Speaker 1: and the booming real estate markets we see in big
Speaker 1: cities overseas. So why do we want to start with that, Well,
Speaker 1: we'll start with the basic driver of it is I'd
Speaker 1: like to say that global real estate, or specifically luxury
Speaker 1: real estate, high end real estate in the in in
Speaker 1: the context of world a worldwide content text is the
Speaker 1: world's new currency. In other words, you need bitcoin, You
Speaker 1: just need a really nice apartment for a nice mion
Speaker 1: dollar price tag. So what you're seeing is you're seeing
Speaker 1: across and this has really been a phenomenon that's virtually
Speaker 1: exploded in the last three to four years, is you
Speaker 1: have you have a lot of concern UH with wealthy
Speaker 1: investors in terms of exposure to higher taxation as governments
Speaker 1: grapple with UH weeken weakening or challenging economic conditions, political
Speaker 1: turnout turnover. So you look at Europe for example, uh,
Speaker 1: tremendous you know pressure, Uh, you know government shortfalls, where
Speaker 1: do we get the money from, limits on compensation for
Speaker 1: securities industry, all sorts of things. Uh. And then just
Speaker 1: on top of that, a higher regulatory overlay for you know,
Speaker 1: many of the wealthy that have their own businesses. You
Speaker 1: start looking around the w world for maybe other places
Speaker 1: to diversify your your your your net worth, and one
Speaker 1: of them, it could be pork bellies, but one of
Speaker 1: them is real estate and and real estate. Ironically, New
Speaker 1: York is very favorable in the international environment since we're
Speaker 1: sort of the starting place for a lot of them.
Speaker 1: What's wrong with the world right now in terms of
Speaker 1: credit problems? Um, so cash is king here. Cash is king,
Speaker 1: and not only that, but it's really I think the
Speaker 1: terminology here is this global safe haven that what you're
Speaker 1: looking for is people. I'd like to say that we're
Speaker 1: building the world's most expensive bank safety deposit boxes where
Speaker 1: you where you put your valuables in it, like your
Speaker 1: artwork and whatever else, and then you rarely go back.
Speaker 1: And there's a lot of that going on here. You've
Speaker 1: been in a number of those apartments. Oh absolutely, and
Speaker 1: and uh, I don't know what mistake I made in
Speaker 1: my career path, but but I'm not to own one
Speaker 1: of those at least is that necessarily a mistake. You
Speaker 1: have a very lovely home in Connecticut, and it's it's
Speaker 1: certainly not a hundred thousand dollar ranch. It's it's a
Speaker 1: little bit nicer than that. And so most of us,
Speaker 1: most of us are not going to be in a
Speaker 1: fifty hundred million dollar penthouse. In fact, nine percent of
Speaker 1: us are not going to be And what you're telling
Speaker 1: us is even the point of one percent who can
Speaker 1: be in it, they're not even there. They're not amazing views,
Speaker 1: aren't they. It really is. And the way you have
Speaker 1: to look at it. What I find almost humorous about
Speaker 1: the topic is when you'll see, for example, in London,
Speaker 1: there have been three transactions over two hundred millions. That's amazing.
Speaker 1: In the US, the three highest transactions there was one
Speaker 1: for millions in the Hampton's, there was another one in
Speaker 1: Connecticut for a hundred twenty million, and then there was
Speaker 1: another one in California for around a hundred million. And
Speaker 1: you throw those all together and it's not even a
Speaker 1: billion dollars. It doesn't have anything to do with the
Speaker 1: balance of the market. It is more like a circus
Speaker 1: side show. It's an anomaly. It has nothing to do.
Speaker 1: But but what it what I think the real estate
Speaker 1: industry sees it as, and you know, perhaps there's some
Speaker 1: truth to it. It's like, well, if someone's willing to
Speaker 1: invest ninety million dollars in a condo that they're rarely
Speaker 1: going to use, that means they're very confident about the
Speaker 1: New York real estate market and they'll there. You know,
Speaker 1: it's a good sign for everybody else. Maybe that's true.
Speaker 1: I can't maybe the million dollars then you don't know
Speaker 1: what the hell else to do. Well, I think that's
Speaker 1: really what it is. And then what you're seeing is
Speaker 1: you're seeing the other phenomenon you're seeing that's tied into
Speaker 1: this look of the regions I talked about Europe. You
Speaker 1: also have China. You have the wealthy Chinese trying to
Speaker 1: extract their money out. You know, there's a right to
Speaker 1: versify around the globe. Right Australia is undergoing Chinese investors
Speaker 1: right now, Sydney and Vancouver. I've always thought of as
Speaker 1: life raths for the wealthy Chinese absolutely who are concerned
Speaker 1: one day they have to hit the eject button and
Speaker 1: get the hell out of dome. And you have that
Speaker 1: in uh In South America, the Brazilians have single handedly
Speaker 1: bailed out the Miami housing market, which was a highly
Speaker 1: speculative market with ten years of shadow inventory, inventory that
Speaker 1: was essentially just built and can't be sold, and it's
Speaker 1: all been gobbled up. There's really not like a hundred
Speaker 1: thousand condos. It was a ten year absorption rate. It
Speaker 1: would take to you know, conservatively to and and it
Speaker 1: was done in three years. And it was primarily because
Speaker 1: of Brazilians and Venezuelans. With the wealthy Venezuelans with the
Speaker 1: regime change, we're looking to get out. And so you
Speaker 1: see those phenomenons, but they have nothing to do with
Speaker 1: any the average American homebuyers. So if someone is looking
Speaker 1: to pick up a vacation property in Miami, not that
Speaker 1: I am, but if you were, has that window closed,
Speaker 1: did you miss the bargain opportunity? Were still seeing a
Speaker 1: fairly brisk appreciation, right So that I'm sure there's you know,
Speaker 1: depends every every neighborhood, every market it's a little bit different.
Speaker 1: What's interesting, and this brings back to the credit discussion.
Speaker 1: If you look at Miami, which is a market that
Speaker 1: I prepare research for, about three quarters of all the
Speaker 1: distressed condo sales are cash, right, I knew you're going
Speaker 1: to go that way about that's amazing. Well compare that
Speaker 1: to what the rest of the country is normally like,
Speaker 1: right right, Well, it's about exactly. If you look at
Speaker 1: the non distress meaning anything that's not a foreclosure or
Speaker 1: a short sale condo market Miami, the cash buyers in
Speaker 1: that market account for about there's there's almost no difference there.
Speaker 1: The variation. It varies every quarter, but the variation is two.
Speaker 1: It's really not a big difference, which means that it
Speaker 1: is a cash market. It remains a cash market. So
Speaker 1: guess what kind of new development projects are being built
Speaker 1: in Misery appealing to international high end uh tremendous linkage
Speaker 1: with New York City. It's about the same time to
Speaker 1: fly to Miami as it is to take a car
Speaker 1: to the Hampton's or not quite the same, but that's
Speaker 1: sort of the three. It's seen as a competing element
Speaker 1: to it, especially markets like Palm Beach which are almost
Speaker 1: all New Yorkers, very high and very little foreign whereas
Speaker 1: Miami is almost all foreign. So the cash you can
Speaker 1: see for different reasons, the cash element of real estate really,
Speaker 1: or the access to credit really defines how markets behave.
Speaker 1: That's quite fascinating. So we we see foreigners coming to
Speaker 1: the US and buying real estate, is that what's driving
Speaker 1: things in London and Sydney and we're else it's exactly
Speaker 1: the same phenomenon. So you're so in almost every major
Speaker 1: how urban market in the in the world, you're seeing
Speaker 1: record prices. Uh. Incidentally, the high end market in London
Speaker 1: is about more expensive than the high end market in Manhattan.
Speaker 1: So we're is it just a matter of not that
Speaker 1: much more space there were more or I think it's Uh,
Speaker 1: I think there is less space. I think that's part
Speaker 1: of it. Also, there's a closer proximity to the Middle East,
Speaker 1: to Russia, who while they're touted here as big players
Speaker 1: in the real estate market here because they buy hope,
Speaker 1: high profile, they're not even the top twenty for tourism.
Speaker 1: It's completely overhyped. The foreigners that are very active in
Speaker 1: the New York market. Uh. And on the East coast
Speaker 1: tend to be from Europe and and the the Chinese
Speaker 1: or you know, the Asia in general is probably the
Speaker 1: fastest growing UH contributors to the market. There was just
Speaker 1: an article you mentioned Middle Eastern money boosting real estate prices.
Speaker 1: It was just an article on Bloomberg today that talked
Speaker 1: about how the Dubai International Airport just passed Heathrow as
Speaker 1: the biggest international airport in the world. That that's just unbelievable.
Speaker 1: Dubai sees more traffic than London and that market is
Speaker 1: largely driven by speculation. You know that It's it's a
Speaker 1: not in the context of the flipping, right, it's more
Speaker 1: of a long term equity play. I think a lot
Speaker 1: of real estate investment right now or is that speculation?
Speaker 1: Then if it's it is speculation, but not in terms
Speaker 1: of I think. I think the way I discerned from
Speaker 1: investment versus speculation is the time frame the window. So
Speaker 1: for example, the time frame in the last housing boom
Speaker 1: that got us got the real estate market into trouble,
Speaker 1: the time frame was weeks months quarters. That time frame
Speaker 1: now is five ten years. It's a much longer window.
Speaker 1: It's really his investment, isn't it. It is an investment,
Speaker 1: and that's really what real estate has always been. We
Speaker 1: just lost our minds as a as a housing market
Speaker 1: during the last cycle that that's quite called a systemic breakdown.
Speaker 1: I'm speaking with Jonathan Miller of Miller Samuel, New York Times,
Speaker 1: Washington Post, Wall Street Journal. There's a wall of quotes
Speaker 1: in your office. When I walk in, like I have
Speaker 1: five things frames I walk in, you have like a
Speaker 1: whole way with like nine seven was cheaper than artwork,
Speaker 1: I guess it is. So we're talking about real estate,
Speaker 1: and you and I know each other for a long time.
Speaker 1: There's a couple of things I wanted to share with
Speaker 1: you that we haven't caught up. So you know, our
Speaker 1: house has been on the market right for two weeks
Speaker 1: before we were sold. So someone said to me, wait,
Speaker 1: you sold your house in two weeks? Really liked seven
Speaker 1: to ten days. But we had to wait for the
Speaker 1: contract to come back. So someone said, how did you
Speaker 1: price your house? And we had gotten a huge This
Speaker 1: is like a middle class split level five hundred and change,
Speaker 1: New Long Island, suburban bedroomtown, had not a big mansion,
Speaker 1: a beautiful kitchen. I love our granite I actually haven't
Speaker 1: had an affair with our gran That's that's a whole
Speaker 1: another story. It is. It is, I just fell in
Speaker 1: love with this granite and it haunted me for days,
Speaker 1: and every other piece of granite just didn't do it.
Speaker 1: I know that sounds ridiculous. People don't think of me
Speaker 1: as a person in a kitchen stroking like this is
Speaker 1: a nice piece of mica. But it's not. My grant
Speaker 1: is a spectacular It is an So the that's another
Speaker 1: story I could share the granite. So before I tell
Speaker 1: you how we sold the house, the granite story was
Speaker 1: we finally so we we ended up in a house
Speaker 1: by accident. It's one of these stories. We had a
Speaker 1: bye and then we went and sold our house, and
Speaker 1: then we went back to our by where we had
Speaker 1: an agreed deal, but we weren't in contract yet and
Speaker 1: the seller had said to us, we decided we want more,
Speaker 1: And basically it was like, well, wait, you told us
Speaker 1: we had to do this really quickly, so we cut
Speaker 1: our price significant. We cut a price fifty grand. That
Speaker 1: house also first weekend, and that was in the midst
Speaker 1: of the frenzy, so it was relatively easy to do. Hey,
Speaker 1: if you want to more. That's fine, but then you
Speaker 1: get full price or you get fast. You don't get both.
Speaker 1: So if you want, I'll go break this deal and
Speaker 1: only cut the price twenty five brand and you could
Speaker 1: wait six months and we could do it at this price.
Speaker 1: But you don't get both. And what response, Um, well,
Speaker 1: we won more. By the way. The side note about
Speaker 1: that is they had fifty deposit on a house that
Speaker 1: they're six months in their kind tracked to close, elapsed,
Speaker 1: and in order to not lose the fifty, they had
Speaker 1: to come up with another fifty, which is why they
Speaker 1: were prushing us for the five. We walked away from that.
Speaker 1: Two years later they got their extra five, but they
Speaker 1: lost a hundred to get it. And I remember saying
Speaker 1: to the agent, look, I know I have a facility
Speaker 1: of numbers, but you don't need to be a rocket
Speaker 1: scientist to know that a hundred is a bigger number
Speaker 1: than twenty five. So that sort of stupidity is life.
Speaker 1: And here's the thing, And you made the comment, you know,
Speaker 1: we sold our house in seven to ten days, right.
Speaker 1: So what you're seeing now in the market in general,
Speaker 1: and many housing markets, is when a seller who feels
Speaker 1: very empowered because there's not a lot of supply out there,
Speaker 1: so they don't have a lot of competition. The notion
Speaker 1: that you sell in seven to ten days means too
Speaker 1: many sellers, that the broker priced it too lower, the
Speaker 1: seller priced it too low, they gave it away when
Speaker 1: the wrong But that is wrong. You're absolutely right, But
Speaker 1: that is that is a an assumption because it's sold quickly,
Speaker 1: and I contend in this market, it's either price correctly
Speaker 1: or it's not in the market. It's incorrectly right, right,
Speaker 1: It's not a dimmer switch, it's a it's a it's
Speaker 1: a it's an on off switch. So so here's what
Speaker 1: I did in order the price of the house. And understand,
Speaker 1: we found a house that we fell in love with.
Speaker 1: And I'll spare the grizzly details, but it's a divorce,
Speaker 1: and it's a little complex, and it's it's a nicer
Speaker 1: house on a bigger piece of land in a nicer town,
Speaker 1: right next to this big preserve. So I'm paying a
Speaker 1: couple of bucks more for than SEC. But that house
Speaker 1: was on the market. We haggled over the price. When
Speaker 1: we finally they priced it too high. It had been
Speaker 1: on the market for almost I think three hundred days,
Speaker 1: we're a live one. Oh look, we got someone interested.
Speaker 1: It's a contemporary house. You have to either like that
Speaker 1: or not, so I know it's kind of a little
Speaker 1: bit of a niche and it's an it's an odd price.
Speaker 1: It's not one of these big multimillion dollar houses, but
Speaker 1: it's not a five hundred thousand dollar house. And so
Speaker 1: it was a weird house. And so our concern was, Hey,
Speaker 1: we don't want to lose the house. We want to buy,
Speaker 1: so we're not gonna give our house away, but we're
Speaker 1: not gonna try and squeeze. Sometimes getting every last penny
Speaker 1: is expensive. So here's what I did. I want. I
Speaker 1: love the Zillo app. We've talked about this. We've both
Speaker 1: been on our boats in the Long Island Sound using
Speaker 1: the nearby button on the Zillo app to look at
Speaker 1: all the prices of the houses that are either for
Speaker 1: sale or sold that are waterfronts, and it's mind boggling.
Speaker 1: When I've been, when I've been in the harbor by
Speaker 1: Port Washington looking at King's Point, these houses are fourteen
Speaker 1: and sixteen million dollars, like the co ops and condos
Speaker 1: that are hundred million. That that's made up. Those are
Speaker 1: just that's just not real. But eight ten, twelve million
Speaker 1: dollar house, that's like a real number because there are
Speaker 1: three four five million dollar houses. So I used that
Speaker 1: Zillo app and I said, show me every house that's
Speaker 1: sold in my town with this many beds, three bedrooms,
Speaker 1: two baths, this this much, you know, and and then
Speaker 1: I looked at them, and I said, everything that sold
Speaker 1: at or above my price point. You know, I was
Speaker 1: looking for the price where everything was either much bigger,
Speaker 1: or nicer, or waterfront or some something that made it special,
Speaker 1: and where that line was. And then I looked at
Speaker 1: everything that was sold, and it was either not as
Speaker 1: nice as our house. You know, we stutted the whole
Speaker 1: house and completely and there's nothing, you know, what has
Speaker 1: to be replaced. The garage door that was the we
Speaker 1: ordered one, It never showed up, never paid for it.
Speaker 1: That's literally the only thing that we didn't turn over
Speaker 1: in the past seven years. And so in what you're
Speaker 1: describing is you're describing the aggregation of real estate information
Speaker 1: right to the consumer. And and so it's very different. Now,
Speaker 1: what's interesting when I was talking before about the buyer saying,
Speaker 1: or rather the sellers saying, oh, I sold it, price
Speaker 1: it too low because it's sold too quickly. Uh. What
Speaker 1: I also have seen through you know, decades of looking
Speaker 1: at transactions and appraising, is that if you overprice, you'll
Speaker 1: ultimately end up with selling your home for a lower
Speaker 1: price than if you had priced it very close to
Speaker 1: the market. It gets stale. That's a reality of it.
Speaker 1: And I think a lot of sellers don't get that,
Speaker 1: and they the agents lose interest. It's just you seeing
Speaker 1: all what there, there's a nice house, but what's well
Speaker 1: think of? Think of you know a lot of people,
Speaker 1: you know, on one hand where we have all this
Speaker 1: great transparency, but in the other hand, you're conveying a
Speaker 1: disconnect with the market. You're saying, uh, I don't know
Speaker 1: what's going on. This is what I want. So the
Speaker 1: buyer's thinking, well, this person is going to be really
Speaker 1: different cult to deal with. They're disconnected. Something wrong with
Speaker 1: the house that we don't know about. There's it's just
Speaker 1: it's all kinds of red flags and that slows down
Speaker 1: the the market in terms of the interest of your
Speaker 1: of your home. I see this over and over and
Speaker 1: over again. It's quite amazing. So so when I looked
Speaker 1: at the run of Zillo data. I said, when I
Speaker 1: put my house up for sale, there is not going
Speaker 1: to be a nicer house at this price point. In fact,
Speaker 1: everything else plus or minus ten or twenty is not
Speaker 1: going to be as nice because I'm trying to look
Speaker 1: at it as a buyer. Hey, if I'm trying to
Speaker 1: between choose between this house for and that, I'm gonna
Speaker 1: go with a nicer house. And I also saw what
Speaker 1: sold within that price point. I have a feeling that
Speaker 1: six d is a tough number to get over because
Speaker 1: if you're conforming mortgage, it's really tough. It's really tough
Speaker 1: to to sell something much above that. So could we
Speaker 1: have listed at six fort nine and and maybe squeezed
Speaker 1: another maybe, But then we're trying to buy, and that's
Speaker 1: the whole point of this is we want that house.
Speaker 1: So you know, when when I started as a trader
Speaker 1: early in my career, I remember one of the head
Speaker 1: traders once said to me, I was trying to squeeze
Speaker 1: like the last couple of eighths. This is back in
Speaker 1: the days of fractions out of a trade, and he's like, look,
Speaker 1: you could get out of this transaction a quarter point lower,
Speaker 1: just hit the bit and move on. But but but
Speaker 1: I could squeeze a few more eighths out of this.
Speaker 1: He goes, Hey, I remember this old guy said to me, Hey,
Speaker 1: leave a little something for the next guy. And can
Speaker 1: I tell you something. It's good advice if you're spending
Speaker 1: all this time and effort in energy to squeeze every
Speaker 1: last dime. There are a lot of non monetary fact
Speaker 1: there's that go into the transaction. How smooth it is,
Speaker 1: how easy the people were dealing with, it's it's he
Speaker 1: works at a finance company in New York. He's being
Speaker 1: transferred from else. They've been so far more or less
Speaker 1: a pleasure to deal with. And I can't help but wonder,
Speaker 1: if I'm beating people up for that last ten or
Speaker 1: twenty thou dollars, how much mental anguish is that going
Speaker 1: to generate? Right? Because the whole the whole process is
Speaker 1: so emotional. Anyway, it's surprisingly emotion it is, no matter what.
Speaker 1: And then that was one of the problems during the
Speaker 1: last boom and bus cycle was people are trying to
Speaker 1: view housing as a you know, a stock or commodity.
Speaker 1: But but you know what, and that's part of it.
Speaker 1: But The bigger part is it also has a you know,
Speaker 1: a use, a usage, that place to live part of
Speaker 1: what you pay for. And it's an emotional I recall
Speaker 1: the conversations I had with people. You oh, six oh
Speaker 1: seven o eight. I'm sure you went through this way.
Speaker 1: You're at a barb cure, a cocktail party. That was
Speaker 1: the only conversation. And neighbors, would you know. Neighbors would
Speaker 1: say to me, you know, I want to put my
Speaker 1: house up. And by the way, these numbers are real.
Speaker 1: That my house that I sold for five and change.
Speaker 1: People selling for seven eight nine, which never nine, but
Speaker 1: six seven almost eight. And I remember having a conversation saying, hey,
Speaker 1: the guy would say to me, the Smiths so their
Speaker 1: house for seven fifty. Why can't I get seven fifty.
Speaker 1: We have a better yard, a better location on the street,
Speaker 1: a nicer kitchen. Yeah, but the Smiths sold their house
Speaker 1: two years ago. That was two years. If you have
Speaker 1: a time machine, I promise you I could get you
Speaker 1: seven fifty if you don't have. But I'm gonna tell
Speaker 1: you I know people who still own Yahoo. It traded
Speaker 1: it almost two right, it's thirty bucks. They can't get
Speaker 1: to eighty. You can't get seven fifty. You have to
Speaker 1: recognize the more. And then I would watch these people
Speaker 1: put houses up for sale and they were all is
Speaker 1: six months to a year behind the market. So the
Speaker 1: market is at six hundred, there at seven hundred, the
Speaker 1: market drops the fire. They're chasing it, chasing it, but
Speaker 1: like on a year left we had and never hitting
Speaker 1: the bid. We had a situation in Manhattan sort of
Speaker 1: the the tipping point of the market, and we were
Speaker 1: the Manhattan market was about two years behind the national market.
Speaker 1: The national market peaked in the summer of six. Ours
Speaker 1: was with Lehman in September of eight, and UH prices
Speaker 1: within the next three to four months fell on average
Speaker 1: about thirty. So essentially New York was late to the party,
Speaker 1: but we caught up real quick. And remember most co
Speaker 1: ops were requiring thirty or the average co op is
Speaker 1: down so's so what we started to see is we
Speaker 1: started seeing people start to come out three or four
Speaker 1: months later to buy, and the broker feedback was, well,
Speaker 1: they're all lowballers. They're all offering about thirty below what
Speaker 1: it was six months ago. And my comment was, if
Speaker 1: the only people in the market are buying something for
Speaker 1: thirty only willing to pay less than what it was before.
Speaker 1: The there that is the new market bid, right. They're
Speaker 1: not low bowling, you're high bowling the ass. And it
Speaker 1: was fascinating because the real estate community in general was
Speaker 1: more negative than the consumer and and and it took
Speaker 1: them longer to sort of rebound because they were devastated
Speaker 1: because the whole principle of property going up forever was
Speaker 1: shattered essentially. But you know, especially here in New York.
Speaker 1: So I graduated grad school in eighty nine, and unlike
Speaker 1: many of my peers who immediately ran out and bought
Speaker 1: co ops and condos, the market crashed. First thing New
Speaker 1: Fed Chack Greenspan did was cut rates, and he had
Speaker 1: a little boom in real estate in nine and then
Speaker 1: as rates kind of normalized, if you bought something in
Speaker 1: eighty nine or ninety in New York City, you did
Speaker 1: not get back to break even until I want to
Speaker 1: say nineties six ninety seven, when the dot com boom
Speaker 1: really started to just started to kick in. And we
Speaker 1: were just discussing this in the office yesterday. I remember
Speaker 1: that was still early in my career. I was on
Speaker 1: a seal side. I worked in a brokerage farm, and
Speaker 1: I recall hearing people say repeatedly, Hey, I need to
Speaker 1: fifty from my account. I need a hundred eighty thousand.
Speaker 1: I'm trading up, I'm buying a vacation property, I'm buying waterfront.
Speaker 1: And back in the nineties, two thousand dollars was a
Speaker 1: huge move. To go from four hundred to six hundred
Speaker 1: was a big move in real estate. Now it's another
Speaker 1: bedroom and a little bigger yard. But in the nineties
Speaker 1: that was like five houses were really nice houses. Now
Speaker 1: it's a split level. You know, in a in a development,
Speaker 1: it's not a right. And what was what the conversation
Speaker 1: was during the nineties, especially the early nineties, was I
Speaker 1: know the market stinks, but I want to buy a house.
Speaker 1: I'm gonna be I lived twenty years and you know
Speaker 1: we're gonna be here. This is our home, and and
Speaker 1: so I think that's I think that's always the right approach.
Speaker 1: It has to be right for your situation. And I
Speaker 1: just what I marveled at how we lost our way
Speaker 1: during this last go round. You know, really you brought
Speaker 1: you brought in ten million people who previously did not
Speaker 1: qualify for mortgages. That creates a huge but it was
Speaker 1: more than clearly more than than just that, right, and
Speaker 1: so even you know, some people have pointed to as
Speaker 1: the start of housing becoming unhinged. I look at that
Speaker 1: as just getting back to where it was eight nine
Speaker 1: and a tremendous amount of stock market wealth. It was
Speaker 1: just diversification. There were people who turned to half a
Speaker 1: million dollars into five million, or a hundred thousand into
Speaker 1: a million. The numbers were just stupid. And so in
Speaker 1: terms of how many zeros are on your IRA, A
Speaker 1: doesn't affect your lifestyle. But moving to a fill in
Speaker 1: the blank, bigger, nicer, closer to the water attitude, it's
Speaker 1: a it's a huge lifestyle change. Also, you're no longer
Speaker 1: in the middle class suburb you were. You're now in
Speaker 1: a whatever, and people love those trade ups, which you know,
Speaker 1: we started talking about this during the break and I
Speaker 1: want during the broadcast, and I've written about this, I
Speaker 1: know if you've written about it. I think all these
Speaker 1: tales of this is the end of real estate as
Speaker 1: an American pastime, I think that's nonsense. Wherever I look,
Speaker 1: I see people still in love with real estate. So
Speaker 1: when it so, here's the thing when you what what
Speaker 1: I find after a change a condition where the markets
Speaker 1: either going up or going down, pundits, observers, participants in
Speaker 1: the real estate market, I think linear. In other words,
Speaker 1: when housing prices are rising, they're gonna rise forever, they're
Speaker 1: gonna fall forever. When inventory is falling, it's gonna fall forever.
Speaker 1: And there's kind of there's no web and flow. There's
Speaker 1: no it's not it's cyclical. It oscillates, it doesn't project
Speaker 1: out right, and and so I find that all the time.
Speaker 1: And then you know, the whole thing in you and
Speaker 1: I have talked about this, the whole thing about home
Speaker 1: ownership and how it's declined. Well, it it reached a
Speaker 1: point uh Fannie May and uh Fannie May stated goal
Speaker 1: at one point on their website was se home ownership
Speaker 1: in the US we got to sixty nine and change ridiculous.
Speaker 1: It's kind of ridiculous. And we're up from sixty nine
Speaker 1: was about three to four percent above what the fifty
Speaker 1: year norm normalized level was. So now we're falling below
Speaker 1: the you know, we've certainly have been falling from the
Speaker 1: sixty nine level, and now we're sort of right in
Speaker 1: the middle of the long term range, and it's continuing
Speaker 1: to fall. And and the pronouncement is, well, we're going
Speaker 1: to be a nation of renters. And and it's a
Speaker 1: kind of a ridiculous argument. It's as wrong to the
Speaker 1: downside to the upside correct, and and really what it
Speaker 1: is is, well, of course, home ownership is falling. Credit
Speaker 1: is historically the tightest it's been in the modern era.
Speaker 1: You have a weak economy, you have all these problems.
Speaker 1: That's why kids are living at home with their parents.
Speaker 1: It's it's not a lifestyle decision or a change, it's
Speaker 1: a it's an economic decision because things are still not
Speaker 1: that great. And let me tell you, by the time
Speaker 1: this airs, my or get my house probably closed on
Speaker 1: my mortgage with Wells Fargo either happened or didn't happen. Um,
Speaker 1: but I've never experienced anything like the Wells Fargo jumbo investigation. UM.
Speaker 1: I'm looking to see if I actually got an email
Speaker 1: from them right now. Uh that it's been pretty pretty
Speaker 1: astonishing the amount of detail that they've asked. They what
Speaker 1: did I did I ever ever told you my game
Speaker 1: show theory about banking with with lending. So think of
Speaker 1: it this way. This is This is the this is
Speaker 1: this is how to explain the irrational behavior that when
Speaker 1: you interact with a bank to get a mortgage. Look
Speaker 1: at a bank is playing a game show and let's
Speaker 1: make a deal. Right So, Door number one is bar
Speaker 1: from the FED for free, grow other lines of business,
Speaker 1: rebuild your capital base, all those sorts of things, anything
Speaker 1: but mortgage lending. Door number two is lend to Joe
Speaker 1: and Mary holmebuyer for thirty years. Maybe one of them
Speaker 1: lose the job. Maybe there's going to be uh decline
Speaker 1: in their local housing market at some point. So there
Speaker 1: there's there's risk, more risk associated with it. So they're
Speaker 1: trying to equalize the risk. This is very simplistic, but
Speaker 1: try to equalize the risk between the two choices. Now
Speaker 1: that now Joe and Mary holmebuyer more a third of
Speaker 1: your mortgage is never going to be the same risk
Speaker 1: level as as as borrowing from the FED as a lender, right, so,
Speaker 1: so they're gonna make them jump through hoops. And I
Speaker 1: contend it's not triple A. It's really quadruple A. It's irrational.
Speaker 1: It's irrational lending. And that's the condition. And then you's
Speaker 1: is that our current conditional condition of quadruple A credit
Speaker 1: and irrational. We have the cleanest mortgage product being created
Speaker 1: in the history of mortgages because lenders, essentially, no matter
Speaker 1: what the the ads say on TV, that's the sales side.
Speaker 1: The underwriting side is afraid of its own shadow. And
Speaker 1: part of that is because of uh, they're you know,
Speaker 1: we're still under quantitative easing, although that's changing, but that
Speaker 1: basically still very low. It's a little tight. But also
Speaker 1: also the economy is not robust. We're not seeing real
Speaker 1: strong income growth or employment numbers, you know when you
Speaker 1: really break it down. So they're very conservative, and that
Speaker 1: conservative is one thing. This is this, I think it's irrational.
Speaker 1: I think it's it's beyond it's one step beyond conservative.
Speaker 1: It's these guys have have examined me so closely. My
Speaker 1: proctologist is jealous. So they've asked they're looking for reasons
Speaker 1: not to lend to you. They've asked for three years
Speaker 1: of personal tax documents. They've asked for three years of
Speaker 1: business tax documents. They've asked for six months of corporate
Speaker 1: and personal bank statements. And I'm happy to give them.
Speaker 1: And every now and then they'll say what's this round
Speaker 1: number we see on the fifteenth of each month. Well,
Speaker 1: it's either drug lords giving me money or paycheck you
Speaker 1: which would you guess? By the way, you have the
Speaker 1: corporate account and the personal account, you can match. Oh
Speaker 1: you lost X here, You've got X there. Do you
Speaker 1: think maybe that's a coincidence or and some of the
Speaker 1: stuff it's really you know, it's called fishing. Is essentially
Speaker 1: they're looking for any reason not to lend to you.
Speaker 1: To be fair to Wells Fargo, their staff has been phenomenal.
Speaker 1: They've given us this checklist and they warned us, hey, listen,
Speaker 1: by the way, this isn't a multimillion dollar mortgage. This
Speaker 1: is barely more than the conforming mortgage a little more.
Speaker 1: And the quite the hoops they've had us jumped through.
Speaker 1: The one house we looked at that was in danger
Speaker 1: of collapsing into the you saw, it would have been
Speaker 1: double the mortgage, and the process was more or less
Speaker 1: the same. And I'm like, you know, this house is
Speaker 1: going to tumble into the sea. Rights, it's the risk,
Speaker 1: isn't me. It's it's gravity, right, you'reware of it, right,
Speaker 1: So so so we submitted the last of the paperwork,
Speaker 1: they start processing it and just before they submitted, they said,
Speaker 1: we have a question on your credit score. My credit
Speaker 1: scores okay, it's pretty good. My wife's credit score is phenomenal.
Speaker 1: And I said, well, what's the issue. You said, I
Speaker 1: was above this cut off that well, over the past month,
Speaker 1: your credit score dropped six points or something. Could you
Speaker 1: could you explain this thing? And I'm like, I look
Speaker 1: at this, I'm like, I don't know what be easy?
Speaker 1: What is this? So they have to translate it into English.
Speaker 1: And it turns out we hired two new people. We
Speaker 1: bought two new computers for them, and this was the
Speaker 1: Apple financing and I and they said, oh, well that
Speaker 1: affects your credit. I go, look, you guys, see our
Speaker 1: balance in our checking account. We could have gone out
Speaker 1: and spent three thousand dollars on two new computers. We
Speaker 1: could have done that thirty times over. But instead the
Speaker 1: account and said, hey, it's better for taxes to lease
Speaker 1: it then to buy. So we leased it for a
Speaker 1: hundred and thirty five dollars a month. That's what caused
Speaker 1: a credit score on the owner of the company. The
Speaker 1: company lease this. It was like an insane it was
Speaker 1: an insane. Yeah, but you go from whatever seven and
Speaker 1: something down seven points that that's a percentage change. That's
Speaker 1: the quadruple a standard debt everybody's being held to. And
Speaker 1: that's the challenge and that's what's defining the housing market
Speaker 1: right now. That that is. So I'm surprised if that's
Speaker 1: the case that any houses are getting. So, you know,
Speaker 1: we're here in Bloomberg. I have a contract I do.
Speaker 1: I do a column for Bloomberg View. And they said,
Speaker 1: you know, list all your sources of income. Well, here's
Speaker 1: what I get from Speaking Apparent, Here's what I get
Speaker 1: from our my day job, and here's what I get
Speaker 1: from Washington Post, and here's what I get from Colombia,
Speaker 1: and here's what I get from Bloomberg. And they're like, oh, well,
Speaker 1: is it looks like it's the same amount every month
Speaker 1: from Bloomberg. Well, yeah, a contract. Can you send us
Speaker 1: the contract? And I had to ask somebody here, hey,
Speaker 1: am I allowed to show this too, Like, yeah, I
Speaker 1: don't worry about it. But meanwhile, you're asking for a contract,
Speaker 1: and it's going to be a nineteen year old in
Speaker 1: Ohio that's viewing the document, right, it's a little more
Speaker 1: sophisticated than that, but not a whole lot more. And again,
Speaker 1: to be look, I've been one of the biggest critics
Speaker 1: of banks since the financial crisis. To be fair to
Speaker 1: Wells Fargo, they have been really extremely professional, very proactive.
Speaker 1: They would give us. It started out with this massive list.
Speaker 1: I'm holding my arms six ft apart, and each week
Speaker 1: I would get an update with okay, these three items
Speaker 1: have been collected. Now we're waiting for these things because
Speaker 1: to gather all this stuff up to get a p
Speaker 1: n L statement about two of the companies for the now,
Speaker 1: the accountants they're not going to do an audit unless
Speaker 1: we want to pay a boatload of money for it.
Speaker 1: And it turns out the words review are a term
Speaker 1: of our art that implies an audit like level of scrutiny.
Speaker 1: So Wells Fargo asked for a review of the p
Speaker 1: and L and the accountants turned around and say, these
Speaker 1: documents have been submitted in furtherance of federal tax filing.
Speaker 1: They appear to be in order to us. That's the
Speaker 1: most the accountants they wouldn't say we reviewed it. They
Speaker 1: certainly aren't gonna say we ordered it. But apparently submission
Speaker 1: in order to a furtherance of tax filings was sufficient
Speaker 1: for well, I think think about that. So you have
Speaker 1: that whole interplay between the consumer and the lender. And
Speaker 1: then you look at the fact that you know, with
Speaker 1: the upticking mortgage rates over the last year, the rates
Speaker 1: came back down. They came back down, But we're pretty
Speaker 1: close to the lows now, aren't we And we're still
Speaker 1: I think we're half a point up. But in a
Speaker 1: quarter when we have a really a three seven five
Speaker 1: for very long, you were there for short, they have
Speaker 1: a fifteen minutes and then it was back to four.
Speaker 1: I mean, that seems to be the floor you don't
Speaker 1: you're not gonna bring for when you look at that
Speaker 1: and and U which created a lot of in many
Speaker 1: ways sort of on one hand, the spike in rates
Speaker 1: last year created this the surge, the last minute sort
Speaker 1: of gasp of air of getting people off the fence.
Speaker 1: And now it's sort of framing the discussion about housing now,
Speaker 1: which is it's less than last year, but really it's
Speaker 1: not really from historical context, it's no different, and the
Speaker 1: rates are really nominally different, there's really no difference, but
Speaker 1: a four handle is still in insane But it actually
Speaker 1: feels tighter or weaker, and and it's all from the
Speaker 1: credit orientation that is driving housing. So we really didn't
Speaker 1: get to what the proper role of government is in
Speaker 1: this because what some of the arguments that are being
Speaker 1: made is you have rates at record lows, but we
Speaker 1: have most of America unable to take advantage and refinance
Speaker 1: because either they lack the credit history the income history. Amazingly,
Speaker 1: they're making payments on a house at six percent. Imagine
Speaker 1: if they could refi at four that would do the economy? Yeah,
Speaker 1: that would that would be a huge although you were
Speaker 1: effectively transferring some income from banks and giving it to everybody, uh,
Speaker 1: everybody else. But the question is what's the proper role
Speaker 1: for government and all this? And if Fannie and Freddie
Speaker 1: are ultimately on the hook, why not waive some of
Speaker 1: these requirements and allow refies because if they default at
Speaker 1: six percent, they're going to default at four percent, and
Speaker 1: they're less likely to default at four percent, So why
Speaker 1: not let them do a refi? Right? I think I
Speaker 1: think the thinking right now, there's there's a lot of
Speaker 1: uncertainties about the former g scs in terms of what
Speaker 1: the role is they're going to merge them into one institution.
Speaker 1: But Congress doesn't have the will to do that. What
Speaker 1: was the word you gonna say that the will to
Speaker 1: do that is that, yeah, exactly. Uh. That And the
Speaker 1: problem is that it is a one size fits all
Speaker 1: orientation in government in terms of terms of risk. I
Speaker 1: think part of it is the austerity concern, or maybe
Speaker 1: that's window dressing on the problem. And so there there,
Speaker 1: we're not giving anybody credit to be able to make
Speaker 1: intelligent decisions. We're really just saying we're not doing this
Speaker 1: and let the chips fall where they may. And that's
Speaker 1: it's a it's a short sighted solution because like you said,
Speaker 1: there's lots of people with plenty of income. Uh, they
Speaker 1: might be low on equity and they don't qualify for REFI,
Speaker 1: and yet there's an existing mortgage at that low equity level. Exactly.
Speaker 1: Another component has been uh, and there's been discussion about it,
Speaker 1: is that the whole concept of principal forgiveness focusing on
Speaker 1: the the borrowers instead of focusing on the making the
Speaker 1: bank's hole, focus on main street the economy hall would
Speaker 1: make the economy hole, and then they're likely make banking hole.
Speaker 1: But we're sort of stuck in this this box right now,
Speaker 1: which is you know, Fannie May, Freddie Mack or making
Speaker 1: a ton of money. It's highly volatile, it's it could
Speaker 1: turn on a dime. Uh. We're still dealing with the
Speaker 1: legacy issues of bad lending practices d o J going
Speaker 1: after everybody. We have, uh, we have the buy backs
Speaker 1: being forced on the g S c s. We have
Speaker 1: Congress saying forced by the g S, forced by the
Speaker 1: g S. Right. In other words, if you sold a
Speaker 1: pool of mortgages to Fannie of Freddy and there was
Speaker 1: some sort of misrepresentation, fraud, whatever, it can be very slight.
Speaker 1: Really Oh yeah, I mean it's not just because we
Speaker 1: know there was a ton of fraud all around. There
Speaker 1: was there was application fraud, there was underwriting fraud, there
Speaker 1: was somebody's there was liar loans the whole deal. Because
Speaker 1: it was just it was just semantics. I've gotten into
Speaker 1: arguments with some of my conservative buddies about the liar loans,
Speaker 1: and my argument goes something like this, you're the bank,
Speaker 1: it's your capital, you're lending it, right, You're the one
Speaker 1: who's taking the risk. It's incumbent on you to make
Speaker 1: sure that the person you're lending it to has an income,
Speaker 1: has a payment history, has a credit score. When you
Speaker 1: say don't tell me that, what you're effectively saying is
Speaker 1: I don't care, so to blame the buyers for you know, look,
Speaker 1: you we all know the story. Wink wink, nudge nudge.
Speaker 1: What was going on with mortgage brokers? Here? Leave that blank,
Speaker 1: I'll fill it in. I mean people signed it and
Speaker 1: holding aside the bad behavior of the mortgage folks. If
Speaker 1: you don't ask for an income history tax file, now,
Speaker 1: this is the opposite of of the proctology exam I'm
Speaker 1: going through with Wells Fargo. If you ask for none
Speaker 1: of that. By the way, we refinance the house we're selling.
Speaker 1: I don't know. Two years ago it was more than
Speaker 1: fog a mirror, but not a whole lot more. And
Speaker 1: the house we had sold before this, I think we
Speaker 1: refinanced that three times over seven years. I've been in
Speaker 1: my house for ten years. I think every year the
Speaker 1: first couple of years I had it, I think it
Speaker 1: four times. Yeah, it's and the process was signed here,
Speaker 1: initials here, checks in the mail. It was insane. So
Speaker 1: where has it's gone to? One ridiculous extreme. Now we
Speaker 1: started an opposite extreme. But I hold the banks responsible
Speaker 1: if you don't ask people what's your income, what's your
Speaker 1: credit score, what were your tax filings, what's your payment history?
Speaker 1: How could you complain when they default? You didn't ask
Speaker 1: for that information, you didn't verify it. Hey, by the way,
Speaker 1: wink wink, nudge, nudge, give us a ballpark. Because they could,
Speaker 1: They could package and sell off the risk to somebody
Speaker 1: else who was unsuspecting. Although oh no, they knew, but
Speaker 1: they were more than unsuspecting. They were Look, we're taking
Speaker 1: this risk and spreading it out. One of my favorite
Speaker 1: discoveries when I was researching bailout Nation was the warranty
Speaker 1: keep It was the warranty that that came with these
Speaker 1: non bank originated mortgages, primarily out of California. Were with
Speaker 1: these jobs right? They gave a warranty that said, this
Speaker 1: mortgage will not this thirty year mortgage, this three and
Speaker 1: sixty month mortgage will not default for ninety days, and
Speaker 1: if it does, you could put it back to us.
Speaker 1: A toaster comes with a longer warranty than that. So
Speaker 1: how long did it take for the salespeople to figure
Speaker 1: out Hey, I'm not looking for people who could qualify
Speaker 1: for a thirty year mortgage. I'm just looking for some
Speaker 1: pushchmuck who's going to make the first three payments. And
Speaker 1: by the way, the first payment is effectively waived. It's
Speaker 1: covered in closing about the so two payments and I'm
Speaker 1: out in days. Think of the irony of that though.
Speaker 1: So during that period you had no credit standards whatsoever,
Speaker 1: housings housing prices rose rapidly. Fast forward to today, excess credit.
Speaker 1: The pendulum has overcorrected to the opposite degree. Housing prices
Speaker 1: are rising and in many markets at a very brisk pace.
Speaker 1: Credit is in play in both cases, but for completely
Speaker 1: different reasons. So somewhere in the middle is the much healthier,
Speaker 1: slower growth, more reasonable housing market. And that doesn't happen
Speaker 1: until you get real job growth, real income growth. Not
Speaker 1: a booming, but but just you know, the whole notion
Speaker 1: that you actually have to have a job and have
Speaker 1: a reasonable income to qualify. When that, when those conditions improve,
Speaker 1: that's how you ease credit. That's how you get housing
Speaker 1: to be truly what I call recovered. All we've seen
Speaker 1: right now I characterized as it's a rebound it's essentially
Speaker 1: off of a low, but there's dead cat bounce are
Speaker 1: a little more than that. I think it's a little
Speaker 1: more than that, because you know, there's so much psychology.
Speaker 1: I know, I know we have we have two cats.
Speaker 1: I'm not allowed to say that phrase at home, but
Speaker 1: but you know there is some psychology to it. People
Speaker 1: not being afraid to venture into the market and buy.
Speaker 1: But the problem is that it's everything is going to
Speaker 1: happen in slow motion and we want quick, quick results.
Speaker 1: That's not how the real world operates. Now, you don't
Speaker 1: get that sort of stuff. So let's solve America's housing,
Speaker 1: credit and economic problems. All and one fell swoop. So
Speaker 1: here's what we're gonna do. So we've noticed that Obama
Speaker 1: has essentially given up on Congress US, who the day
Speaker 1: we're recording this, we see in a gallop pole is
Speaker 1: now down to a seven percent record low since Gallup
Speaker 1: started asking this question, and I think it was three
Speaker 1: record low. Not only is it the lowest Congress has
Speaker 1: ever been, it's the lowest any institution America has ever
Speaker 1: ever marked and ament. And so Obama has very interestingly said,
Speaker 1: I'm going to take a page out of the George
Speaker 1: Bush playbook and bypass Congress, and there's a lot of
Speaker 1: stuff I can do through an executive order. And so
Speaker 1: here's what I want to know. We we know that
Speaker 1: there's a tremendous amount of economic activity and economic potential
Speaker 1: locked up in people who are are stuck in their houses.
Speaker 1: We also know that ultimately Fannie and Freddie, meaning the taxpayer,
Speaker 1: is on the hook for those mortgages, whether they a
Speaker 1: fault at six p or default at a lower rate.
Speaker 1: What would happen if the President said to the head
Speaker 1: of Fannie and Freddy, I want to institute a policy
Speaker 1: that allows people who are current on their mortgages, so
Speaker 1: we're not dealing with short sales, we're not dealing with
Speaker 1: underwater sales, to refinance at their existing mortgage amount or lower,
Speaker 1: so there's no cash outs at the prevailing interest rate.
Speaker 1: I know in theory this may reduce the income to
Speaker 1: Fannie and Freddie, although there will be all these transaction
Speaker 1: fees that will help them. What is this a can
Speaker 1: we can the President order Fannie and Freddie to do
Speaker 1: that and be what would that do to the to
Speaker 1: the U S economy and to the U S housing market? Well? Uh,
Speaker 1: so the caveat that you're not an economist, I probably
Speaker 1: say I'm a non economist proudly. So the new head
Speaker 1: of f h f A, the regulatory agency that overseas
Speaker 1: Fannie and Freddy that was formerly called O H G
Speaker 1: O and uh, they were asleep at the switch. Worse
Speaker 1: than asleep at the switch. They're the ones who gave
Speaker 1: Fanny and the G S c S permission in late
Speaker 1: two thousand five. Hey, you're losing market share at Wall Street.
Speaker 1: You don't have to just do conforming loans. You can
Speaker 1: do non conforming meanings sub prime and all day. And
Speaker 1: so two thousand six, Fannie and Freddy go headlong into
Speaker 1: that just as the market is topic. They might have
Speaker 1: been his final spasm. And actually, when they changed their
Speaker 1: name to f h f A, it literally was the
Speaker 1: same website, just with different U R L and the logos.
Speaker 1: Everything was the same. So I never quite understood that.
Speaker 1: And I sort of feel like the the rejiggering of
Speaker 1: Fannie and Freddy, if that were ever to happen, is
Speaker 1: going to be kind of the same thing. It seems
Speaker 1: like a can of worms. But anyway, I think that
Speaker 1: I think that you you take away income from Fannie
Speaker 1: and Freddie to give it to I think it's more.
Speaker 1: I think it's more important for the public to be
Speaker 1: on their feet and spending in a consumer economy than
Speaker 1: it is about worrying about whether Fannie or or Freddie
Speaker 1: you're gonna make five million dollars this core. I think
Speaker 1: that's ultimately that just comes back to the text. It
Speaker 1: comes back to the taxpayer anyway. So so I think
Speaker 1: that's important. We do have the head of the f
Speaker 1: h A. F h f A is much more pro
Speaker 1: consumer in terms of their outlook and providing some flexibility,
Speaker 1: trying to give flexibility to Fannie and Freddie. So I
Speaker 1: think that's all good. I just I haven't heard any
Speaker 1: overtures that the Obama administration would even entertain that. Well,
Speaker 1: I haven't spoken to them yet. But once I planned
Speaker 1: this idea, well, I I have full confidence that you
Speaker 1: could sell them on the idea. I don't know if
Speaker 1: I could sell it, but it's a fascinating concept. I
Speaker 1: think it's a I think it's probably a good concept
Speaker 1: because so much of our wealth is tied up uh
Speaker 1: people that are stuck. It's tied up in housing, and
Speaker 1: I think that triggers a lot of other things. The mobility,
Speaker 1: it triggers its real estate mobility, employment mobility, geographic mobility.
Speaker 1: That's a key thing. And I'm looking for the downside there.
Speaker 1: I don't think there really is any downside, especially from
Speaker 1: the naysayers if it was if you were if you
Speaker 1: were ignoring principal reduction. Principal reduction is sort of a
Speaker 1: hot hotbed of debate. I'm in favor of it. Let
Speaker 1: we could hold that to put that to the side,
Speaker 1: and don't even do that. Just the people who are
Speaker 1: current have employed. You want to REFI to a lower
Speaker 1: rate and nothing else changes. Even you know, if you
Speaker 1: have a four thousand dollar Morgans in the house, that's
Speaker 1: or three fifty, does it matter if the interest rate
Speaker 1: to to the note holder, if it's six percent or
Speaker 1: four percent, it shouldn't make a difference. So that there
Speaker 1: are people who hold the securitized notes, they have to
Speaker 1: expect a certain amount of maturation that happens normally. This
Speaker 1: is gonna be a huge shift. Now in theory, it
Speaker 1: creates a whole bunch of new paper that Wall Street
Speaker 1: can then move about and sell to these people. And
Speaker 1: if you want to hold onto whatever you have, you
Speaker 1: can hold it. The way this gets called is kind
Speaker 1: of complicated. Back from the investors that we're expecting a
Speaker 1: six return. I'm sorry that you're you're gonna have to
Speaker 1: get a less of a return like everybody. But you're
Speaker 1: probably reducing dramatically the default that's right, that's the trade off.
Speaker 1: You're you're getting a lower default risk because people can
Speaker 1: afford it, and you're you're helping the overall economy. So
Speaker 1: I'm looking I've been playing with this idea. I'm looking
Speaker 1: for a downside to it, and other than the fact
Speaker 1: that people hate government intervention. But you know, there's an
Speaker 1: article in The Times today by Neil Irwin talking about
Speaker 1: formerly of the Washington Post, talking about the Import Export
Speaker 1: Bank and how certain people hate it because it's government
Speaker 1: in bed with big business. And but the reality is
Speaker 1: that's the nature of industry globally, it has to be.
Speaker 1: That's what's going Listen, If if the European banks are
Speaker 1: subsidizing air Bus, how can the US not allow Boeing
Speaker 1: to compete on the same planet playing field. And if
Speaker 1: you don't do that, what ends up happening is they
Speaker 1: lose the battle right to Airbus because it's subsidized. The
Speaker 1: ironic thing is the jackasses who were opposed to this
Speaker 1: are Delta Airlines, because, by the way, worst airline in
Speaker 1: the planet, run by morons. I can't begin to tell
Speaker 1: you how much I hate despise that airline, my least
Speaker 1: favorite airline. Search the blog, search redults dot com for it.
Speaker 1: You'll see. I don't know, and I don't care to
Speaker 1: tell you the truth. But here's the amazing thing. Delta
Speaker 1: opposes it because they say, oh, you're subsidizing bowing sales
Speaker 1: to competitive um carriers overseas, and that's not the government's role. Hey, morons,
Speaker 1: Neil Irwin points out, you guys were rescued in a
Speaker 1: government bail out, so just sit there and shut the
Speaker 1: hell up. Or right, it's like, you know, wait, so
Speaker 1: you got yours and that's the end of it. Nobody
Speaker 1: of all the hypocritical things. I don't know if they're
Speaker 1: more hypocritical than they are a lousy airline, but those
Speaker 1: are your choices. Most hypocritical company in America, worst airline
Speaker 1: in America. So that's uh. This message is brought to
Speaker 1: you by Delta. Fly Delta, and maybe you'll make it there.
Speaker 1: I just had a couple of really bad experiences with them.
Speaker 1: Other people disagree with me about Delta, but UM actually
Speaker 1: rarely fly it, so I don't fly it anymore, and
Speaker 1: I'll never forget. I was flying to Atlanta to give
Speaker 1: a speech. I booked first class and they do what
Speaker 1: a lot of legacy airlines do, which is when they
Speaker 1: don't have a full flight, they cancel it and they
Speaker 1: roll you into the next flight. And I'm like, listen,
Speaker 1: I gotta be somewhere at six o'clock tonight. I know
Speaker 1: your your cancelation was nonsense. So they give me. They get, well,
Speaker 1: we'll get you on this plane, and they go from
Speaker 1: to A to B which is the middle from from
Speaker 1: at back by the bathroom. And I'm like, I'm sorry,
Speaker 1: I had a first class ticket. Why am I? And
Speaker 1: the woman says, well, A, you didn't have a first
Speaker 1: class ticket, you had a six g Y ticket, and
Speaker 1: B that's the only seat we you know, that's all
Speaker 1: we have at this time. So I'm like, let me.
Speaker 1: I just have to stop you there. I don't know
Speaker 1: what a six G Y is. When I went on
Speaker 1: to Delta dot com, um, your choice is either first
Speaker 1: slash business class or Economy and there was like a
Speaker 1: six hundred dollar difference in in price. So I don't
Speaker 1: know how what what six g y is or whatever
Speaker 1: the code was, but you give me two choices, business
Speaker 1: or coach. I picked Business. Is there an empty business
Speaker 1: class seat? I would like to have it? And at
Speaker 1: that point it's like I had to get down there,
Speaker 1: so I get on the flight. To add insult to injury,
Speaker 1: there's an empty seat in business. And then to make
Speaker 1: matters worse, when I called out to to say, all
Speaker 1: I bought this ticket for whatever. I'd like a refund
Speaker 1: of the difference, they proceeded to explain to me that
Speaker 1: they couldn't tell the difference in price. Let me stop
Speaker 1: your second. I work in finance. I could tell you
Speaker 1: the price of any of ten thousand stocks on any
Speaker 1: day for the last hundred years, at any second of
Speaker 1: the day. Your own tickets. You can't tell me what
Speaker 1: the hell these are outing for. I bought it. You
Speaker 1: could see the day I bought it. What were you
Speaker 1: selling the coach tickets for? It? Just refund me the difference,
Speaker 1: and I said, you know what, and they refused to
Speaker 1: do it. They actually sent me a certificate for two
Speaker 1: fifty dollars, which when I went to use seven months
Speaker 1: later was expired. So I said, you know, my penalty
Speaker 1: for this is one day I'm gonna have a radio show,
Speaker 1: And on that radio show, I'm gonna tell people I
Speaker 1: love Virgin American Airlines. Even though the last trip back
Speaker 1: from San Francisco, the seat didn't work, the juice didn't work,
Speaker 1: at the power on, the electrical didn't work, the TV
Speaker 1: didn't work. Still better than Delta and UM anytime if
Speaker 1: I have to fly Jet Blue, Jet Blue is always fine.
Speaker 1: I get to sit in the front of Virgin and
Speaker 1: Jet Blue, it doesn't matter you sit even the even
Speaker 1: even more spaces like that is the greatest air travel
Speaker 1: bang for the buck. There is just those extra six
Speaker 1: in just by you make all the difference. It really, uh,
Speaker 1: it really does. So somehow the poor people on a
Speaker 1: treadmill listening to this, like I thought we were talking
Speaker 1: about this, red sky will not shut up. So let's
Speaker 1: bring this back to housing and what this means going forward.
Speaker 1: Assume the government does nothing. What what is them? Just
Speaker 1: play out? Yeah, what happens with Fannie and Freddie? What
Speaker 1: should the role of government be and and what do
Speaker 1: we do with this, what how does housing manifest itself
Speaker 1: over the next couple of years. So I think that
Speaker 1: housing will follow the path of what the economy does.
Speaker 1: In other words, I think, I think when we see
Speaker 1: real improvement in the economy, and what I mean by
Speaker 1: that is simply more job real job growth, I think
Speaker 1: that that makes all the difference in the world, and
Speaker 1: that'll start to melt the problem increases, a little wage increase,
Speaker 1: nothing more, you know, huge, just improvement, an uptick. I think,
Speaker 1: to me, all that matters of the fundamentals that you know,
Speaker 1: this whole notion, this whole this whole notion of like
Speaker 1: housing is going to lead us out of this. I
Speaker 1: feel it's just the opposite. It always has been the opposite.
Speaker 1: But it's always stated as housing, you know, brings us out.
Speaker 1: It's always the the economic sort of interpretation of housing
Speaker 1: is always how we get out of a you know,
Speaker 1: a week period, and and I feel it's I don't
Speaker 1: know how that where that math comes from, but it's
Speaker 1: always backwards because you actually have to have a job
Speaker 1: and have you know, income prospects to qualify for a mortgage.
Speaker 1: So I feel it all goes hand in hand on
Speaker 1: the on the more specific government aspect of it is
Speaker 1: that I don't think Congress has the will or the
Speaker 1: ability to make a sea change to what is responsible
Speaker 1: for of the housing of housing mortgages in the country.
Speaker 1: I think that is just a disaster waiting to happen.
Speaker 1: Meaning what should they be doing. I think they'll do nothing.
Speaker 1: I mean as opposed to what would you want them
Speaker 1: to do? Uh, I think what I'd want them to do.
Speaker 1: So so what I've found is is, uh, there has
Speaker 1: to be more awareness of sort of separation of church
Speaker 1: and state. In other words, for example, you know the
Speaker 1: biggest culprits, one of the biggest culprits in this whole
Speaker 1: last down cycle where the rating agencies right where they
Speaker 1: are basically joined at the hip with the people that
Speaker 1: that you know that they were. They were under partners
Speaker 1: with underwriters, just real state appraisers were joined at the
Speaker 1: hip with mortgage brokers. Right, find the right appraiser, make
Speaker 1: the number, we can do the deal. Right. We have
Speaker 1: that whole and then we have the revolving door between
Speaker 1: the regulators and private industry. So there's no real separation.
Speaker 1: And to me, the only way you reduce that you'll
Speaker 1: never eliminate it, because human beings are really good at
Speaker 1: screwing things up. Just everything sort of devolves into chaos
Speaker 1: over time. I think you're trying to reduce it. What
Speaker 1: Dodd Frank does the wrong It sort of takes the
Speaker 1: wrong approaches. Let's regulate what happened in the past, and
Speaker 1: that's always true. Isn't every regulation backwards looking? By absolutely?
Speaker 1: You know, it's amazing how well the formation of the
Speaker 1: SEC and and glasst Eagle worked from the thirties because
Speaker 1: it was backwards looking, but it was also when the
Speaker 1: pace of change was so slow. It was good for
Speaker 1: seventy five years. That's whatever you pass, it's got like
Speaker 1: that's part of my problem with this whole no stion
Speaker 1: of red revamping Fannie and Freddie. When Fanny worked okay,
Speaker 1: from the depression up until right up until ten years ago, right,
Speaker 1: and so you have to look at what changed in
Speaker 1: O five the middle last decade to make them implode
Speaker 1: and then eliminate that. That's the we don't just because
Speaker 1: you put window you know, new window dressing on an
Speaker 1: agency that's effectively going to do the same thing doesn't
Speaker 1: make the problems go away. It's a waste of time.
Speaker 1: You know, the Fannie and Freddie bashers always conflate two
Speaker 1: or three issues. One is, Fanny and Freddie was a
Speaker 1: horrifically corrupt organization who spread a lot of lucre around
Speaker 1: d C. So they were the biggest supporters of public
Speaker 1: relations agencies. Every agency in Washington had a Fannie May account.
Speaker 1: They they were dominating. They spread them. Anny Franklin Rains
Speaker 1: was not afraid to spend the cash, and it was funny.
Speaker 1: It was It was funny that I remember seeing guys
Speaker 1: like Newt Gingrich not complain about them, and then you
Speaker 1: find out years later, even though everybody thinks of Fannie
Speaker 1: and Freddy is a democratic entity, they were spreading the
Speaker 1: money around on both sides of the aisle, which is
Speaker 1: the smart way to do it. One of the good
Speaker 1: parts about the bail out is that we stopped all
Speaker 1: that lobbying, at least for Fannie and Freddie. We could
Speaker 1: have done it for the banks and for Wall Street
Speaker 1: would be a much healthier country. Nobody thought to say, hey,
Speaker 1: Goldman in Bank of America shouldn't really be in the
Speaker 1: corridors of power. As much as Fannie and Freddie were
Speaker 1: stopping both, but but hold that aside. Do we need
Speaker 1: an entity between the buyers and the banks, working either
Speaker 1: with or with the im premature of government to keep
Speaker 1: mortgage rates down? We we've seen European don't have this,
Speaker 1: although they also don't have thirty year fixed mortgages. How
Speaker 1: is this done around the world? Will make this our
Speaker 1: last question. How are other mortgages processed, underwritten, regulated elsewhere
Speaker 1: that might provide an alternative example versus what Fannie and
Speaker 1: Freddie does. Well, So what's popular around the world are
Speaker 1: adjustable rate mortgages. I mean, that's that's not popular that dominates.
Speaker 1: I think many countries look at US as so it
Speaker 1: makes homeowners slaves to interest rate fluctuation very much so.
Speaker 1: And then on top of it, so countries like Spain
Speaker 1: where you can't walk away from a mortgage ever ever,
Speaker 1: so you are tied to that and you have to
Speaker 1: pay it back. There is no there is no get
Speaker 1: out of jail free card in in the mortgage world
Speaker 1: in countries like Spain in the US is in half
Speaker 1: the US. In the US, it's basically just you know,
Speaker 1: it's just another process you go through. It's but there
Speaker 1: are some states that a recourse states, meaning that that
Speaker 1: it's a debt you can discharge in bankruptcy, but you
Speaker 1: can't just walk away. And then there are nonrecourse states
Speaker 1: where the state the contract says in the event that
Speaker 1: you failed to pay for the house, the bank gets
Speaker 1: the house. You're done, which was always thought of as Okay,
Speaker 1: I'm not making the payments, I lose the house. That
Speaker 1: was thought of as a kind of fair trade off.
Speaker 1: Nobody expected a million people to do what it wants, right,
Speaker 1: an inundation of it, right, Yeah, the states that are
Speaker 1: dependent on the court systems were the slowest to recover.
Speaker 1: Larida had a their own you know, hyper right, which
Speaker 1: by the way, was supposedly was a debacle, a a
Speaker 1: gnarly mess of corruption and lack of oversight that and
Speaker 1: of itself. I'm sure there's a book in that from
Speaker 1: to sift through it. So so really, the countries that
Speaker 1: don't have g s c s in the middle, the
Speaker 1: alternative is fluctuating rates. You know, at rates, it's a
Speaker 1: different perspective. You know, I'm, as you said, I'm not
Speaker 1: an economist, and I and and there's a lot of
Speaker 1: criticism about the the effort that it takes to to
Speaker 1: manage a thirty year mortgage, and we shouldn't be doing that,
Speaker 1: uh and and but it works so well for so
Speaker 1: long exactly. So my my view of that is, you know,
Speaker 1: we're we're you know, we're questioning homeownership or questioning uh
Speaker 1: Fanny May, and we're questioning thirty year fixed. Yet they
Speaker 1: worked really well until about ten years ago. So why
Speaker 1: don't we look at what happened ten years ago and
Speaker 1: focus on that. So that was sub prime, that was
Speaker 1: liar loans, that was mass securitization, that was a lack
Speaker 1: of rating agency accountability. There were a lot of factors
Speaker 1: caused a functional system to freeze, choke and spit everything
Speaker 1: out all at once. So then you like, then you
Speaker 1: think there's a place for the g S c S.
Speaker 1: I think there's a place. I don't I. I The
Speaker 1: way I look at it is funnaments of the economy
Speaker 1: get back on track. All most of the stuff goes away.
Speaker 1: It's just a long, gradual process. I fear that by
Speaker 1: embedding even more layers of Remember, all the regulators were
Speaker 1: asleep at the switch. Everyone Sheilla Beart maybe one of
Speaker 1: the few exceptions, and the same with a woman who
Speaker 1: was the head of the commodities futures trading. She actually was. Yeah,
Speaker 1: she was soundly ignored by Greens. She was Chastis and
Speaker 1: Greens absolutely, So I agree Sheilabert and Uh. I can't
Speaker 1: recall the woman's name, but I s' that's it. And
Speaker 1: and they were the ones that sort of the voice
Speaker 1: of reason. But the balance was they're caught up in
Speaker 1: it too, and then a lot of it they didn't understand. It,
Speaker 1: didn't understand you know, the all the the you know,
Speaker 1: the financial engineering. So I don't think the answer is
Speaker 1: add more. You made the basket. I don't think I
Speaker 1: don't think adding more solves anything. I think it's let's
Speaker 1: get back to like fixing the economy first, and a
Speaker 1: lot of this stuff plays out. It's not that we're
Speaker 1: going in the right direction. It's just a slow motion
Speaker 1: and slow motion ride. So as the economy goes, so
Speaker 1: goes real estate. Absolutely, Jonathan, I've had you here for
Speaker 1: two hours. Thank you so much for coming in. It's
Speaker 1: been a pleasure pleasure to you know, you and I
Speaker 1: talked about this stuff all the time, but it's rare
Speaker 1: when we actually get to sit down for an uninterrupted
Speaker 1: meandering conversation about I thought the airline discussion was really important. Though,
Speaker 1: let me tell you something, it doesn't take much to
Speaker 1: set me off. I'm I'm getting better, though. I'm I'm
Speaker 1: much more present. I read a fascinating study the other
Speaker 1: day that essentially said the cathartic release of anger does
Speaker 1: nothing too. Some people say, how you get it out
Speaker 1: of your system? It turns out they've done studies and
Speaker 1: people it becomes persistent and higher when you especially when
Speaker 1: you're driving. UM. So, really, I'm trying to learn how
Speaker 1: to let these slights go and find a degree of peace.
Speaker 1: I forgive Delta Airlines for their gross incompetence, and I
Speaker 1: choose to use my flying you have We know you
Speaker 1: have choices in airlines today. Hell yeah, and that's why
Speaker 1: I could at least get over my cost with with
Speaker 1: Delta and gratefully fly. They apparently weren't. That's you're listening
Speaker 1: to Masters in Business with Barry rid Holts on Bloomberg
Speaker 1: Radio